The industry is still too preoccupied by regulation because there continues to be poor practice on the edges of the market.
Bridging has come a long way in the 25 years we have been around in this market. In just the past five years alone we have seen various professional outfits emerge and learn the trade. But still the short-term sector continues to suffer a bit of a bad reputation.
That’s reflecting a tiny minority of players on the fringes of bridging rather than the majority who adhere to good professional standards. But that’s not to say all of the bridging market and all lenders are whiter than white.
There are still too many instances of some lenders tying their borrowers up in opaque paperwork while others charge exorbitant rates of interest.
Penal rates of interest are being applied and back dated to the start of a loan if it fails to repay on time and there are those still charging sky high fees and then pulling out of doing the loan at the last minute.
This is all very bad practice. And I think it is that which has us all hung up on regulation.
Bridging itself is no more in need of regulation than buy-to-let. The vast majority of bridging – or short-term finance more accurately - is a commercial decision, albeit in the residential property market.
These are experienced landlords and property developers looking for reliable and fast finance to fund commercial projects. Regulation is only helpful when there is a consumer to protect – and 95% of bridging is business.
The Financial Conduct Authority is only able to comment publicly on areas of the market that are regulated and I believe it knows that in the bridging market this equates to around 5% of the business done.
That’s why it talks about customers being wrongly or inappropriately put into bridging loans where they should have a regulated mortgage – because that falls inside its remit.
But in fact, it is the professional standards in the unregulated sector that we all know need to be addressed.
My suspicion is that the regulation debate continues to rumble on because the FCA has no jurisdiction in the unregulated space yet it knows that behaviour must improve.
At Fincorp we agree. It is perfectly possible to be part of an unregulated market with stringent, moral and professional standards of behaviour overseen by a strong trade body.
The buy-to-let market is a brilliant example of a self-regulated market that operates healthily without instances of borrowers being fleeced.
Bridging is capable of following that example. The Association of Short Term Lenders is beginning to get there with its Value Charter which demands professional standards from its members.
But now, we at Fincorp are calling on the ASTL to do more to address instances of poor transparency.
We have all heard about interest charging – different lenders, different methods, compounding, rolling up, charging interest on the interest. Let’s use APRs to reflect true cost, chimes one voice in the market, but with loans under a year APRs in my view can be just as misleading.
Instead we need to make things clear and simple. At Fincorp we don’t charge fees and we do charge a flat monthly rate. We don’t expect everyone in the market to follow our example – that wouldn’t be competitive for the borrower at the end of the day – but we do think setting out your stall and sticking to it is vital.
The ASTL needs to be more specific about what is and isn’t acceptable in terms of customer charges and backdating charges. I believe the trade body must widen its scope – too many lenders are not members and continue to flout good practice.
The ASTL has begun to work on this sort of behaviour standard through its charter but as an industry there is far still to go. Getting to a point where we can stop banging the regulation drum is a matter of getting to a point where we all behave in a way that doesn’t require regulation to stamp out bad practice. We are on that path we just have to commit to it and ostracise those who don’t.
The Association of Bridging Professionals also has a role to play.
Brokers have a lot of power in the short-term finance market. They should use it to demand more of the lenders they take their clients to. Don’t put up with opaque, convoluted and ultimately unfair pricing. Demand transparency and take your business to a lender who will give that to you.